Aug. 2 (Bloomberg) -- Ethiopia’s government may develop gas
fields in its eastern Somali region itself or with a partner
while a contractual dispute with a Chinese oil and gas company
is resolved, Mines Minister Sinknesh Ejigu said.

Five production-sharing agreements signed on July 22, 2011,
with PetroTrans Co. for 10 blocks in the Ogaden area of the
region, which include the Calub and Hilala fields with natural
gas resources estimated at 4 trillion cubic feet, were canceled
on July 1, Sinknesh said on July 31.

“The Ethiopian government is responsible for developing
this,” she told reporters in the capital, Addis Ababa. “We can
develop this. Let them go to arbitration and if we want -- we
have the finance and the technical capability -- we can do it.”
The government will also consider joint ventures and other
options, she said.

Landlocked Ethiopia, Africa’s second-most populous nation,
produces no oil or gas and is partly reliant on coffee and other
agricultural exports for annual foreign-exchange earnings of
around $3 billion. SouthWest Energy, based in the capital, said
it hopes to strike crude in the Ogaden next year.

The exploration and development contracts with Hong Kong-based PetroTrans, which the government hoped would bring
financing of as much as $5 billion, were revoked after repeated
warnings about a lack of investment and activity, Sinknesh said.

“We were flexible because we thought this was a big
company,” she said. “They were talking too much, they were
saying they have money, but it was not found to be so.”

’No Breach’

In its termination notice, the ministry said PetroTrans
failed to arrange a loan to be repaid from future revenue, the
company said yesterday in an e-mailed statement attributed to
its lawyer, Philip Hirschler.

“PetroTrans rejects the notice as invalid and denies that
it is in breach of” agreements, Hirschler said. “PetroTrans
has made considerable investments in connection with the
petroleum production-sharing agreements, remains committed to
this project and will continue to seek to resolve its
differences with the Government of Ethiopia amicably.”

The concessions, including gas reserves discovered in the
1970s, were relinquished by Malaysia’s state-owned Petronas
Nasional Bhd in October 2010.

PetroTrans fulfilled its obligations by analyzing data and
signing contracts for surveying and drilling, and will take the
dispute to arbitration in Geneva unless the decision is
reversed, the company said in a July 12 letter to the ministry
obtained by Bloomberg News. It has the right to sue any company
that takes control of the blocks until settlement, according to
the letter.

Sinopec, CNPC

The company said it approached state-owned China National
Petroleum Corp. and China Petrochemical Corp. about working
together in Ethiopia. It also “significantly advanced
negotiations” for the construction of a pipeline to Djibouti
and natural gas processing facilities at the neighboring
country’s port, it said.

Lenders refused to fund the project citing “security
concerns and sovereign financial credibility issues,”
PetroTrans said in the document that was sent to the ministry.

The Ogaden National Liberation Front has fought a low-level
insurgency in the area since 1984 seeking greater autonomy. In
April 2007, the banned group attacked a site operated by China’s
Zhongyuan Petroleum Exploration Bureau, killing nine Chinese
workers and 65 Ethiopians.

The letter is “not relevant to the point of termination,”
Sinknesh said in a phone interview today.